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Tuesday, 2 February 2016

Like the California sky in January,will the future be brightfor the DTSA as it floats towardsfull Senate consideration?

Last Thursday, the US Senate Committee on the Judiciary reported the proposed Defend Trade Secrets Act (DTSA) out of Committee (see video here). This means that, following a mark-up session, the bill (with amendments) was approved. It will now go to full Senate consideration. For background on the DTSA see the AmeriKat's previous reports here.

Kat friend and trade secret expert, James Pooley, has flagged up two key changes to the DTSA relating to whistleblower protection and the language on "threatened misappropriation". James, who recently testified before the Senate Judiciary Committee on the DTSA, comments as follows:

"Whistleblower Protection: Trade secret law in the U.S. has never had an express exception for those who need to disclose their employer’s confidential information in order to report a possible crime to the authorities. Although some cases have spoken of an implied exception based on public policy, this has never been clearly embraced in a reliable way. In order to ensure people come forward without the fear of retaliation, they need to know they have a safe harbor against persecution for their efforts. The amendment offered by Senators Leahy and Grassley will for the first time guarantee protection to employees against claims of trade secret misappropriation when all they have done is talk to a lawyer or to the authorities. This will of course not just help those individuals, but also give law enforcement better access to information about criminal activity that otherwise would remain bottled up behind employee nondisclosure agreements.

Threatened Misappropriation: Here the story is a bit more complicated, but starts with the language of the Uniform Trade Secrets Act (now the law in 47 states) that expressly allows injunctions against “actual or threatened misappropriation.” In 1995 the Seventh Circuit in Pepsico v. Redmond (1995) approved a temporary 5-month injunction against a high level executive taking the same marketing position with a company that was about to launch a directly competing product. Importantly, the individual had lied about his plans and otherwise behaved in a way that showed he was not trustworthy. But in announcing its decision, the court in dictum said that an injunction could issue against an employee taking a new job when it would “inevitably” lead him to misuse confidential information. This came to be known as the “inevitable disclosure doctrine”. Naturally, because it was expressed in such broad terms many in California took it to be inconsistent with our state’s policy on the free movement of labor. A California court later said as much (see Central Valley General Hospital v Smith (2008)). This lead to a patchwork quilt of states where the doctrine was rejected or accepted.

The amendment offered by Senator Feinstein (Democrat - California) reads that a court may not stop an employee from “entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows.” Some may think that this just forces California’s rejection of the inevitable disclosure doctrine on the federal courts, but I have a very different view. I consider that it will have the salutary effect of shifting the debate away from an abstraction that has almost never been applied in the way that people assume, and move back to the statutory language. This will refocus attention on the nature and quality of proof required to prove a “threat.” In other words, this could result in the end of the debate about the purported existence of the inevitable disclosure doctrine. In that sense, Senator Feinstein's amendment has not changed the law but reframed the debate to where it should have been all along."

There are other changes to the DTSA, including tightening up of the ex parte seizure orders by emphasizing that the remedy is available only in "extraordinary circumstances" and clarifying that only federal law enforcement can perform the seizure (with assistance from an independent expert). To review all the amendments click here and here.

As the AmeriKat has mentioned previously, the DTSA stands a strong chance of being passed for all the reasons that bipartisan bills in an election year have a good chance of being passed. For more detail about the amendments, see this excellent post by James published on Patently-O.

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